Is cash on delivery the future for aid?

Results-based aid is a welcome innovation, but the problem about what to do when targets aren't met is profound

A baby in Maputo, Mozambique, receives an injection under an immunisation programme funded by the Global Alliance for Vaccines and Immunisation (Gavi). Photograph: Martin Godwin for the Guardian
Martin Godwin/Guardian

I have just come back from a conference on payment for performance (P4P) and results based aid (RBA). "Results" is the word of the moment in many donor agencies, spurred on by a sceptical public wondering why money is being spent overseas and not on their local hospitals. And there has been plenty of debate about the opportunities and possible dangers of putting results at the centre of the development agenda.

But results-based aid is a particular subset of the more general results agenda. Rather than just taking results into account and promoting a "culture of results", RBA pays for the results themselves. It is basically an iteration of the recent fashion in rich countries to place targets on everything from hospital waiting lists to grades in secondary school. Achieve the target, and you get paid a bonus; fail to achieve it, and you don't.

The big vertical health funds, such as the Global Alliance on Vaccinations and Immunisations (Gavi) and the Global Fund, have been innovating in this area for almost a decade, but now everyone from the World Bank to DfID wants a piece of the action. And developing countries such as Rwanda and Burundi are adopting P4P with some success in their domestic health systems.

Researchers at the US thinktank the Centre for Global Development have developed the purest form of RBA so far. They have called it cash on delivery (COD) aid, after a type of mail service you can get in the US in which you pay for the package only when it arrives.

In a response to the heavily criticised over-involvement of donors in poor country policy and process decisions, COD aid advocates call for a hands-off approach in which the recipient country can use whatever tools it chooses, as long as it achieves results. No conditions, beyond the targets set. No micro-management. A totally transparent contract. For every extra child passing exams, for example, an agreed cash payment will be made. No ifs or buts.

Much has been written about P4P, RBA and COD aid, and there are certainly problems with the approach relating to – for example – risk, short-termism and measurement. In particular, the problem about what to do when targets aren't met is profound – just cutting poor performers loose seems unacceptable. But rather than rehearse the pros and cons, here I just offer some reflections.

First, this is a good debate to be having. At the conference I was asked whether this represented a shift that would revolutionise aid giving. I said "no", but I reflected on what a similar conference would have been looking at 30 years ago, when the bright new idea was structural adjustment – a disastrous concept that imposed the wrong policies and undermined political accountability in aid-dependent countries for a generation.

RBA will not revolutionise aid giving, because donor incentives are too complex to allow it ever to be more than marginal to the aid effort. Donors don't do hands off. Ten years ago, some people thought that funds given directly to governments and not tied to specific projects would revolutionise aid. It didn't, which is not to say that it hasn't helped in some countries. The fundamentals of the donor-recipient relationship hold firm whenever there are serious quantities of money involved. Donor incentives are often not in line with developmentally sound decision-making. All forms of aid have their strengths and weaknesses, and RBA will be no different.

That said, I do feel quite positive towards RBA – and COD aid in particular. Aid needs to be judged in terms of its direct, macroeconomic, policy and institutional impacts. On three of these four areas (macroeconomic impacts will be more or less equal, I expect) COD aid performs well, incentivising direct impacts and generally steering clear of policies that retard rather than encourage development.

There was a time when countries were being forced to adopt fees for basic health services, a practice now discredited by the overwhelming evidence. Today, by proposing to hand decision-making over fully to the recipient country, COD aid demonstrates a post-ideological humility regarding how to achieve development. The fact that China has become a mighty power has only added to the sense that there is more than one way to fry and egg.

There are many other ways to achieve results too. The evaluation of the first five years of the Paris Declaration on Aid Effectiveness, based on about 30 country studies, is set to show how an increased focus on ownership and alignment, the core principles at its heart, have contributed to better health results. Accountability is the key, as the World Bank's impressive 2004 World Development Report on basic service provision points out, and RBA should mention that word as much it does its constant mantra: measurement.

Accountability between government and citizens can only evolve when the government's resources come from the people, not from external financiers or windfall natural resource revenues. Although welcome, RBA will not revolutionise development finance. But recognition that we are entering an era in which aid must gradually decline relative to GDP, and be replaced by domestic resources, probably would.